What is the first step to calculate accrued interest?

To calculate accrued interest, the primary consideration is the settlement date. This is because accrued interest is calculated based on the number of days that have elapsed since the last interest payment date up to, but not including, the settlement date. Knowing the settlement date allows you to accurately determine how many days of interest will be included in the accrued interest calculation.

Once you establish the settlement date, you can then proceed to look at the other variables involved, such as the interest rate and the last interest payment date. However, identifying the settlement date is crucial as it serves as the endpoint for your calculation, while the prior interest payment date serves as the starting point. Hence, this makes it the first and essential step in the process of calculating accrued interest. Understanding this sequence is vital for ensuring accurate financial calculations in securities transactions.